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Recently, Fitch Ratings concluded the peer review of 16 mid-tier regional banks including Webster Financial Corp. (WBS - Snapshot Report). The long-term and short-term Issuer Default Ratings (IDRs) of Webster and its subsidiaries were affirmed at 'BBB/F2' and the outlook was maintained at ‘Stable.’

Banks with total assets ranging from $10 billion to $36 billion come under mid-tier regional category. The other features include homogenous business plans, dependency on spread income from loans and investments as well as share repurchases. Further, mid-tier banks lack geographical diversification as well diversified revenue streams. IDRs for these banks are dispersed with a low of ‘BB-' and a high of 'A+.'

Rating Rationale

Fitch affirmed the ratings of Webster owing to continuously improving credit quality and profitability metrics.

As of Dec 31, 2012, Webster’s allowance for loan losses dipped 24.1% year over year to $177.1 million. Further, net charge-offs to average loans (annualized) declined 61 basis points (bps) year over year to 1.47%. In addition, ratio of nonperforming loans to total loans fell 6 bps to 1.62% over the same time frame.

Fitch maintained its outlook on Webster at Stable. Continuously improving asset quality and manageable level of credit losses were the reasons behind the affirmation. Also, expectation of reduction of not more than 25 bps in the tangible common equity ratio from the third-quarter levels in the near term was another reason to reiterate the ‘Stable’ outlook on Webster.

Rating Action on Other Banks

Besides Webster, Fitch has affirmed the IDRs of 12 banks including Associated Banc-Corp (ASBC - Analyst Report). Sufficient capital levels, robust earnings and funding profile of these companies, along with strong asset quality, prompted the rating agency to affirm the ratings.

The IDRs of Cathay General Bancorp (CATY - Snapshot Report) and First National of Nebraska were upgraded due to strong operating performance and constantly improving credit quality as well as sturdy capital levels. However, IDRs of Fulton Financial Corporation (FULT - Snapshot Report) and TCF Financial Corporation were downgraded since these have a weak asset quality, comparatively higher funding costs and risks related to balance sheet.

Conclusion

Webster’s robust asset quality and profitability profile might translate into further positive ratings. On the contrary, if revenue, profitability and capital levels deteriorate, the company might face rating downgrades.

Currently, Webster carries a Zacks Rank #2 (Buy).

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